In case you have not been paying close attention to the housing market, let this serve as your summer update :) I will look at the latest data and share a few anecdotal examples from transactions I am currently handling or just recently completed. In short, homes are still selling, but the deals getting done are becoming more complicated, more selective and far less predictable.
On the surface, the numbers remain strong. In the D.C. metro 5,274 homes sold in June, up 4.4% from last year. Inventory increased 9%, mostly made up from homes lingering on the market, while the median sales price rose 3.8% to $675,000. Northern Virginia was even stronger, with a median price of $810,000, up 5.2%, and sales volume increasing nearly 13%.
It is important to note, however, that those numbers largely reflect activity that took place during the peak spring market, when conditions were relatively calm and buyers were perhaps more optimistic. Frankly, they do not fully capture what is happening on the ground right now.
Over the past several weeks, the average 30-year mortgage rate has hovered in the mid-6% range, significantly higher than the sub-6% rate briefly reached earlier this spring. Rates remain stubbornly high despite the administration directing Fannie Mae and Freddie Mac to purchase as much as $200 billion in mortgage-backed securities, an intervention intended to reduce borrowing costs. The fact that rates remain elevated even with that support underscores just how much pressure continues to exist in the mortgage market.
The larger problem is not simply rates, it's how quickly affordability can change. A buyer may begin looking at homes based on one estimated payment and suddenly face a meaningfully higher payment by the time an offer is accepted. Add rising property taxes, insurance premiums and condominium or HOA fees, and buyers are being squeezed from every direction.
First-time home buyers are feeling it most. Our market as one increasingly driven by higher-income and repeat buyers, while many first-time buyers are being shut out.
The luxury market is still holding up better than most. In the second quarter, a home had to sell for about $1.9 million to fall within the top 5% of the D.C. regional market. Luxury sales were up 4.5% from last year, while new listings were down more than 13%, so the lack of supply is still helping support prices. That decrease in listings is doing most of the work in keeping the market strong.
One of my current listings received four offers. Two were below the asking price, and the other two were only moderately above it. So yes, there was still competition, but it was not the kind of aggressive, almost automatic bidding we were seeing when buyers felt more confident about interest rates and where the market was headed.
I also recently represented buyers in two separate transactions around the $2 million range. In both cases, we made good offers. They were not outrageous, and they were not designed to win at any cost, but they were strong offers with a reasonable balance between price, terms and risk.
Neither offer was accepted initially. In both cases, the sellers chose another buyer who was offering either more money or better terms.
Then, in a complete coincidence, both of those buyers backed out.
Our clients were still interested, still qualified and still ready to move forward, so both of our offers were ultimately accepted. Seeing that happen twice in such a short period says something about the current market. The highest offer is not always the strongest offer, and it is certainly not always the offer most likely to make it to closing.
There is still plenty of demand for desirable luxury homes, and the limited supply is keeping prices relatively steady. But buyers are showing less willingness to overlook every flaw, waive every protection and stretch beyond reason simply because another buyer is involved. The homes are still selling. They are just selling with a little less certainty and a little less enthusiasm.
Some condominium segments have six months or more of inventory, yet prices are not falling as quickly as that supply would normally suggest.
Many owners purchased or refinanced when interest rates were extremely low. Their mortgage balances and monthly payments may be low enough that renting the property remains preferable to selling it at the price today’s buyers are willing to pay. Instead of reducing the price until the unit sells, they withdraw it and become landlords. Condo sales are at their lowest level inalmost 10 years, which is great for renters as rental prices start to come down with that new inventory.
This creates a strange market. There is plenty for buyers to choose from, but many sellers are not truly motivated to meet the market. The inventory exists, but much of it is not priced to sell.
The deals getting done this summer generally involve buyers who remain patient and prepared, they are my buyers who have casually looked at home here and there over the last two years and were reluctant to overpay or waive all contingencies, and right now they don't necessarily have to.
Sellers who are prepared to bring a quality product to the market, make the improvements necessary, price well, and have reasonable expectations are generally going to do just fine.
Prices remain high, inventory is increasing and desirable homes continue to attract strong demand. However, the market is more fragile and far more selective than the headlines suggest.